According to the L2Beat tracking service, Ethereum Layer 2 solutions are facing strong overall growth once again. After Ethereum fees reach new highs and the network becomes inconvenient for using decentralized apps and solutions, Layer 2 networks come in handy for reducing transaction fees and speed.
In the last seven days, the total value locked in the Layer 2 Ethereum solution has increased by 20% and reached $4.39 billion. Projects like Arbitrum, Loopring and Optimism showed 20, 84 and 98% growth, respectively. Both Arbitrum and Optimism are utilizing optimistic rollup technology.
Optimistic rollups
This type of Layer 2 solution allows for the utilization of smart contracts that run on top of the main Ethereum layer. While smart contracts run on top of the main layer, they are still being secured by the mainnet.
If the user is willing to use a Layer 2 solution, his or her funds are being stored in the smart contract on Ethereum. Users send a deploy transaction off-chain to an aggregator who then creates the new smart contract, then computes a new state root and finally creates an Ethereum transaction.
Other solutions like Loopring utilize different technology called ZK Rollups, which functions differently and is being marketed as a more sophisticated technology than Optimism. It utilizes math and complex calculations to allow transactions with zero-knowledge proofs.
Growth of the technology
The main reason for the rapid growth and development of the Layer 2 solution is the increasing fees on the Ethereum network. Previously, U.Today reported that Ethereum main network fees have constantly stayed above 100 Gwei for a whole week, which makes one transaction cost around $15.
With decentralized applications sometimes making thousands of TPS, gas fees can become a serious issue for users. That is why Layer 2 solutions receive more attention from investors who are not willing to spend hundreds of dollars on transaction fees.
Vladislav Sopov
Dan Burgin